Its turning out to be a good week for our predictions. After the announcement that Harbinger is going to build a new LTE ATC network, comes the news that Ryanair is discontinuing its in-flight connectivity service, after OnAir exercised its right to terminate the contract. Though the termination apparently “puzzled analysts”, we predicted back in 2006 and reiterated in 2008 that there wouldn’t be enough revenue for both Ryanair and OnAir to make money from the service, and so the fleetwide deployment would never be completed.
Thought Ryanair is putting a brave face on it, presumably in the hope of finding another sucker to take on the contract under similar terms and conditions, it was well known that the original contract was extremely unfavorable to OnAir (so much so that a major rival told us they wouldn’t touch it with a bargepole).
We believe that Ryanair got a cut of revenues off the top, with OnAir left to pay for the terminals out of what was left after paying expenses for airtime, termination, etc. Unsurprisingly it was therefore virtually all upside for Ryanair (bar the cost of flying the equipment around), but financially disastrous for OnAir when revenues came in at a small fraction of the EUR528K per plane per year that was originally predicted by the two companies.
OnAir Analyst Briefing Sept 27, 2007
It now seems that an approximation of reality is slowly returning to the in-flight communications market. Hopefully the next shoe to drop will be when Southwest doesn’t follow through on its fleetwide deployment plans with Row44, for exactly the same reason – there simply isn’t enough passenger revenue to pay for expensive VSAT or SwiftBroadband terminals, if both the airline and provider want to make a profit.
The initial response of AT&T and Verizon to the FCC’s approval of Harbinger’s plans has been extremely hostile, with AT&T describing the action as “manifestly unwise and potentially unlawful”. Presumably their reaction is at least partly due to the fact that it appears at least one and possibly both of them were caught napping by the FCC’s action.
Interestingly, Communications Daily is also reporting that the FCC’s Republican commissioners sought to have the limitations on leasing to AT&T and Verizon stripped from the Order, but were unsuccessful. We also understand that at least two MSS operators have come away from recent meetings with the Commission convinced that the forthcoming proposals to encourage the use of MSS spectrum for mobile broadband (promised in the National Broadband Plan) will suggest removing the requirement for all ATC terminals to have dual-mode satellite-terrestrial capability and instead simply require that the satellite services are offered to some subset of customers.
This sets the scene for a big political battle if and when Harbinger moves forward. You can imagine the potential for arguments between Democrats and Republicans about favoring well-connected hedge funds. Of course what might trump it all is if it turns out that Huawei is building (and possibly vendor financing) the network. In that case the specter of national security implications is likely to make Mr Falcone’s previous appearance before Congress seem like a cakewalk.
As we’ve been blogging over the last month, Harbinger is planning to deploy a multi-billion dollar US ATC network which is breathtaking in its ambition. On Friday, Harbinger filed a letter with the FCC summarizing these plans, which it had told the FCC confidentially a month earlier, before the FCC approved Harbinger taking control of SkyTerra and approved its ATC license modifications, both of which were also announced on Friday.
Specifically, Harbinger plans to develop a nationwide terrestrial broadband mobile 4G LTE network, which, without regard to satellite coverage, will provide wireless data on a nationwide basis, through over 36,000 base stations. The network will be operated on an open access basis and will initially use 23MHz of spectrum, including 8 MHz of 1.4 GHz terrestrial spectrum, 5 MHz of 1.6 GHz terrestrial spectrum (1670-75MHz) and 10 MHz of (SkyTerra’s) MSS/ATC L-band spectrum. Through a cooperation agreement with Inmarsat and associated waivers of the Commission’s ATC rules, by 2013 Harbinger will have access to an additional 30 MHz of ATC spectrum (in the L-band).
In addition, Harbinger also is discussing with other Commission licensees (presumably including TerreStar but clearly also including other terrestrial bands such as WCS) the possibility of hosting or pooling their spectrum in order to enable them on the terrestrial wireless network, i.e., the spectrum would be incorporated into the infrastructure of the terrestrial wireless network. The hosted or pooled spectrum then could be integrated with Harbinger’s spectrum to enhance the broadband capacity of the terrestrial network.
Service will begin in two trial markets, Denver and Phoenix, with a commercial launch before the third quarter of 2011 providing service to up to 9 million POPs. All major markets will be installed by the end of the second quarter of 2013. Harbinger has committed to the FCC that it will construct a terrestrial network to provide coverage to at least 100 million people in the United States by December 31, 2012; to at least 145 million people in the United States by December 31, 2013; and to at least 260 million people in the United States by December 31, 2015. By 2015, the company expects to serve more than 40 million connected consumer terrestrial devices on a wholesale basis, which is even more ambitious than Clearwire’s targets.
Just in case it wasn’t clear already, the proposed Harbinger bid for Inmarsat is not going to happen: the emphasis is on the Cooperation Agreement as the means of exploiting the L-band MSS-ATC spectrum. On the other hand, Inmarsat can’t be disappointed with $115M per year of incremental revenue with no cost and no risk.
Oh, and just to throw one more random guess out there, the first thing I thought of when reading T-Mobile’s recent statements that it has enough spectrum for the next couple of years, but that it was looking at various joint ventures to boost its holdings, and correlating it with Harbinger’s commitments not to sell more than 25% of its capacity to the two largest mobile operators, was that I bet I know who is number one on Harbinger’s list of potential target partners to use its new wholesale network.
This morning I had a brief chance to try TerreStar’s new Genus phone before the MSS CEO panel at Satellite 2010/MSUA-7. As pointed out in previous posts, the link is quite sensitive to phone orientation (remember not to turn around during a call). In addition, the phone software is still being optimized to address various issues such as the delay in establishing a voice channel after a call is answered, and the registration time necessary to switch from cellular into satellite mode. However, satellite SMS appears to work well (both to and from the phone) and may end up being more important to TerreStar than originally anticipated. It will therefore be interesting to see to what degree TerreStar is able to take customers away from Iridium and other MSS providers (as TerreStar’s CEO indicated was his ambition) once the phone enters commercial service in the next few months.
While some questions remain about TerreStar’s satellite service, more clarity is emerging about Harbinger’s likely ATC plans after the release of the National Broadband Plan yesterday. As we noted a few weeks ago, it appears that a consortium is being put together by Harbinger (and a team of executives recruited) to build a new entrant LTE-based mobile broadband network, using a mixture of spectrum in the L-band, 2GHz band, 1.4GHz band and 1670-75MHz band, along with substantial vendor financing. The Broadband Plan indicates that the FCC is likely to be supportive of moves to accelerate the deployment of an ambitious ATC network, though Harbinger’s network would probably not require any substantive changes to current FCC regulations. It has been suggested to us that the network would ultimately require $4B of capex and another $4B in funding for subscriber acquisition and other costs, indicating a similar scale of ambitions to Clearwire, which is targeting a subscriber base of 30M users over a 10 year period. Such a plan would certainly be a transformative move for the entire MSS industry (even if its focus is almost entirely on terrestrial services), and so all of us will be waiting with bated breath to see whether Harbinger realizes its plans, something that now seems more likely than not to become clear in the very near future.